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Problem C-3A (Continued)
2017
June 21 Cash ..........................................................................................56,720
Gain on Sale of Investments ............................................. 1,055
Long-Term Investments—AFS (Sony)................................ 55,665
Sold Sony shares [(1,200 x $48.00) - $880].
June 30 Long-Term Investments—AFS (Black & Decker).........................50,835
Aug. 3 Cash ..........................................................................................9,315
[(600 x $16.25) - $435].
Nov. 1 Cash ..........................................................................................19,850
Gain on Sale of Investments ............................................ 4,352
Dec. 31 Fair Value Adjustment—AFS (LT)*...........................................21,858
Unrealized Loss—Equity................................................... 13,818
Unrealized Gain—Equity.................................................... 8,040
Annual adjustment to fair values.
* Cost Fair Value
Black & Decker: 1,400 x $39.00 = $ 54,600
Microsoft: 2,400 x $69.00 = $165,600
$212,160 - $220,200 = $8,040 (fair value exceeds cost)
Problem C-3A (Concluded)
Part 2
12/31/2015 12/31/2016 12/31/2017
Long-Term AFS Securities (cost).................... $117,100 $85,143 $212,160
Part 3
2015 2016 2017
Realized gains (losses)
Sale of Johnson & Johnson shares....... $ 2,235
Sale of Mattel shares................................ (5,080)
Sale of Sara Lee shares........................... $(4,665)
Sale of Sony shares................................. 1,055
Problem C-4A (30 minutes)
Part 1
1. Journal entries (assuming significant influence)
2015
Jan. 5 Long-Term Investments—Kildaire..............................................1,560,000
Oct. 23 Cash...........................................................................................192,000
Long-Term Investments—Kildaire........................................192,000
Received cash dividend (60,000 x $3.20).
Dec. 31 Long-Term Investments—Kildaire..............................................232,800
2016
Oct. 15 Cash...........................................................................................156,000
Long-Term Investments—Kildaire........................................156,000
Record cash dividend (60,000 x $2.60).
Dec. 31 Long-Term Investments—Kildaire..............................................295,200
($1,476,000 x 20%).
2017
Jan. 2 Cash...........................................................................................1,894,000
Gain on Sale of Investments..............................................154,000
Long-Term Investments—Kildaire*......................................1,740,000
Sold Kildaire shares.
* Investment carrying value, January 2, 2017
Original cost............................................. $1,560,000
Problem C-4A (Continued)
2. Carrying value per share, January 1, 2017 (see computations in part 1)
3. Change in Selk's equity due to stock investment
Earnings from Kildaire (2015).......................................$232,800
Net increase....................................................................$682 ,000
Part 2
1. Journal entries (assuming NO significant influence)
2015
Jan. 5 Long-Term Investments—AFS (Kildaire)...................................1,560,000
Cash.....................................................................................1,560,000
Purchased Kildaire shares.
2016
Oct. 15 Cash...........................................................................................156,000
Dividend Revenue..............................................................156,000
Received cash dividends (60,000 x $2.60).
Dec. 31 Fair Value Adjustment—AFS (LT)*..........................................120,000
$360,000 - $240,000 = $120,000
Problem C-4A (Concluded)
2017
Jan. 2 Cash...........................................................................................1,894,000
Sold Kildaire shares.
Jan. 2 Unrealized Gain—Equity..........................................................360,000
2. Investment cost per share, January 1, 2017
$1,560,000 / 60,000 shares = $26
3. Change in Selk’s equity due to stock investment
Dividend Revenue (2015)............................... $192,000
Financial and Managerial Accounting, 6th Edition
36
Problem C-5A (40 minutes)
Part 1
Available-for-sale securities on December 31, 2015
Security Cost Fair Value
3,500 shares of Company B common stock..............$ 79,690 $ 81,375
17,500 shares of Company C common stock..............662,750 610,312
Disclosure
The portfolio of available-for-sale securities would be reported on the
Part 2
Dec. 31 Fair Value Adjustment—AFS*.................................................20,002
Unrealized Loss—Equity.................................................. 20,002
Adjustment to fair value for AFS securities..
* December 31, 2014, available-for-sale securities
Cost _ Fair Value
$ 535,300 $ 490,000
December 31, 2015, adjustment to the Fair Value Adjustment account:
$1,357,430 - $1,284,938 = $ 72,492 Cr. balance on Dec. 31, 2014
Part 3
Only gains or losses realized on the sale of available-for-sale securities
appear on the 2015 income statement. Unrealized gains or losses appear
in the equity section of the balance sheet.
Year 2015 realized gains (losses)
Stock Sold Cost Sale Gain (Loss)
40,000 shares of Company A stock.......... 535,300 510,900 (24,400)
Problem C-6AA (60 minutes)
Part 1
2015
Apr. 8 Cash...........................................................................................5,938
Sales.................................................................................... 5,938
Nov. 18 Cash...........................................................................................13,800
Foreign Exchange Loss...........................................................300
Accounts ReceivableSumito.......................................... 14,100
(1,500,000 yen x $0.0092/yen)
*Original measure = (19,000£ x $1.4566/£) = $27,675
Year-end measure = (19,000£ x $1.4620/£) = 27,778
Gain for the period ……………………... = $ 103
Dec. 31 Foreign Exchange Loss*.........................................................77
Accounts ReceivableHamid Albar................................. 77
2016
Jan. 12 Cash*.........................................................................................27,928
Jan. 19 Cash*.........................................................................................7,514
Foreign Exchange Loss...........................................................61
Problem C-6AA (Continued)
Part 2
Foreign exchange loss reported on the 2015 income statement
November 18........................................ $(300)
Part 3
To reduce the risk of foreign exchange gain or loss, Doering could attempt
to negotiate foreign customer sales that are denominated in U.S. dollars.
To accomplish this, Doering might be willing to offer favorable terms, such
NOTE: A few students may also understand Doering's opportunity for hedging.
